A Golden Bounce

The last couple weeks have been a big disappointment for all the gold bugs, myself included. Traditional wisdom would have bet gold would have been going up as investors are seeking safe haven to shelter from the equities market meltdown, and to shield themselves from the future inflation caused by the massive liquidity injection from central banks. Instead, gold has retreated from above $900 to below $700 per ounce during the last couple weeks. Some of the possible reasons for gold's retreat could have been due to 1) hedge funds liquidation to raise cash, 2) central banks selling to raise dollars.


Looking at the recent chart for the gold ETF, GLD, it appears to be getting ready for a bounce off the recent low level. Although the 50 day and 200 day moving average showing a bearish trend, but with the recent panick selling of equities, the anticipated interest rate cut from the upcoming FOMC meeting, investors could be shifting their money back to gold to hedge against the possible weakening of the dollars. In the past, when the dollars weaken, investors would shift their money to commodities such as oil. Due to the slowdown of the global economy and declining demand for oil, oil is no longer the preferred hedge against the weak dollars. That leave gold as the commodity investors will use to hedge against the weaken dollars.

In the next few days, I will be keeping an eye on GLD for a possible countertrend trade. I will post my trade in the comments section if a trade is made.